CEO and Chairman Out at Alcatel-Lucent

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What about the CEO's office? One name already circulating is that of Ben Verwaayen, a Dutch-born industry veteran who has just stepped down as CEO of British telecom BT Group (BT) after leading a widely praised turnaround there. Verwaayen was vice-president for international operations at Lucent from 1997 until jumping to BT in 2001, but because of his long career in Europe, he was never considered an insider at the largely U.S.-focused Lucent. Verwaayen declined to comment on the speculation.

Russo's Big Incentive

Some in France are pushing for a local turnaround artist such as former Finance Minister and ex-France Telecom (FTE) boss Thierry Breton, who now serves as an adviser to private equity giant Kohlberg Kravis Roberts. (Breton wasn't reached for comment.) But Alexandre Peterc, a Paris-based analyst at Exane BNP Paribas, says that would be a big mistake. "If we get someone from the typical French establishment, there would be no change," he says.

Russo, for her part, had an incentive to leave by the end of this year. Under a bylaw change adopted at the annual shareholders' meeting (BusinessWeek.com, 5/27/08), she's entitled to a severance package of almost $9.5 million if she departs before Dec. 31. After that date, she would have received no severance pay unless the company met revenue and profit targets, which it has failed to do since the merger.

Despite the coming change in leadership, Russo says the company's overall thrust remains the same. "Our strategy has taken hold," she said in the conference call. "I'm pleased with the progress that we're making in a very difficult market." Indeed, there were some glimmers of good news in the mostly dismal second-quarter results. Postmerger cost cuts yielded wider profit margins in most of the company's businesses. And despite the writedown in its North American wireless operations—stemming mainly from reduced spending by a key customer, Verizon (VZ)—wireless revenues look set to grow in other markets such as India and China.

That's a start. But Alcatel-Lucent's new management will still have a long way to go in persuading investors and customers that this would-be global champion is back on track—or whether it was even worth forming in the first place.

Matlack is BusinessWeek's Paris bureau chief.